Honda to part ways with Hero

Japan’s Honda Motor Corporation has worked out an agreement to dissolve its holding in its 26-year-old joint venture, Hero Honda, by March 2011.It is planning to sell its 26%stake to the Munjals, the promoters of the Hero group in India, for an amount of $1.2 billion.

An agreement was signed way back in 1984 between Hero Honda and HMC whjere the two groups agreed to manufacture and sell bikes together. Honda will continue to provide technological assistance to Hero Honda till 2014 after which the two groups will have no further technological ties. The Munjals already hold 26.21 % of the stakes in Hero Honda. Problems between the 2 groups date back to1999 when HMSI remained restricted to the making of scooters as its pact witrh Hero Honda precluded it from entering into the manufacturing of motorcycles.Issues had also surfaced with Honda being dissatisfied with the royalty Hero Honda was paying to it in lieu of the technological assistance. Hero Honda pays around Rs 500 crore to Honda annually.

Hero Honda is the second largest two wheel manufacturer in the world and accounts for over 48% sales in the two wheeler industry.